Chapter 7, Problem 7.10BP

Calculate and interpret ratios (LO7–7)

Barry Sanders, likely the best running back to ever play football, has opened a successful used-car dealership. He has noted a higher than normal percentage of sales for trucks and SUVs with hauling capacity at his dealership. He is also aware that several of the best recreational lakes in the state are located nearby. Barry is considering expanding his dealership to include the sale of recreational boats. Barry provides the following projections of net sales, net income, and average total assets in support of his proposal.

	Cars Only	Cars and Boats
Not sales	$6,500,000	$7,700,000
Not income	500,000	700,000
Average total assets	1,700,000	1,900,000

Required:

1.     Calculate Barry’s return on assets, profit margin, and asset turnover for cars only.

2.     Calculate Barry’s return on assets, profit margin, and asset turnover for cars and boats.

3.    Based on these ratios, what recommendation would you make?